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Monday, August 24, 2009

The Cap-and-Trade Bait and Switch

I've spoken in the past on how cap-and-trade can be an effective, market-based way to limit unwanted emissions. If done properly, cap-and-trade is a powerful tool that imposes a proper price on externalities, and solves the ever-vexing "Tragedy of the Commons".

Regardless of your opinion of cap-and-trade schemes generally, David Schoenbrod and Richard Stewart write in the Wall Street Journal that the Waxman-Markey bill moving through Congress isn't it.

Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing. It purports to set a cap on greenhouse gases, but the cap is so loose in the early years that through the use of cheap offsets the U.S. need not significantly reduce its fossil-fuel emissions until about 2025. Then the bill would require a nosedive in fossil-fuel emissions. This balloon mortgage pledge of big cuts later is unlikely to be kept.

The top-down directives come in three forms. First, electric utilities, auto makers and states get free allowances on the condition that they comply with regulations requiring coal sequestration, alternative energy sources, energy conservation, advanced auto technology and more. Second, many other provisions of the 1,428 page bill mandate outright regulation on subjects ranging from how electricity is generated to off-road vehicles and household lighting. Third, still other provisions provide subsidies for government-chosen technology "winners" such as alternate energy sources, plug-in vehicles and weatherization of old buildings.